SECURE Act Significantly Changes When You and Your Beneficiaries Must Take Distributions from IRAs and 401(k)s

The Setting Every Community Up for Retirement Enhancement Act of 2019, simply known as
the SECURE Act, which was passed by Congress on December 19, has been signed into law. The
SECURE Act makes significant changes to when distributions must be taken from IRAs and
defined contribution plans, such as 401(k)s. Beginning in 2020, the Act moves back the date by
which the original account owner must begin taking required minimum distributions to age 72.

The Act also significantly limits the beneficiaries who may “stretch” out required minimum
distributions from an inherited account based on their own life expectancies to the original
account owner’s spouse, disabled individuals and individuals less than 10 years younger than the
original account owner. All others must withdraw the entire inherited account balance (and pay
the attendant income taxes) within ten years of the original account owner’s death. (This 10-year
requirement is delayed for minor children of the original account owner until they reach
majority.) The law does not apply to beneficiaries of account owners who died prior to 2020, but
their beneficiaries will be subject to the new law.

Other changes made by the SECURE Act include eliminating the age cap on contributions to a
traditional IRA, allowing penalty-free withdrawals of up to $5,000 per eligible parent to pay
qualified expenses related to a birth or adoption, permitting $10,000 of 529 funds to be used to
repay qualified student loans, allowing certain part-time employees to participate in their
employer’s 401(k) and returning the “kiddie tax” rate for unearned income of minor children to
their parents’ marginal tax rate.

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